Center Focus Column

Moving Milk Beyond Our Borders

A couple of weeks ago I had the opportunity to join Pennsylvania Secretary of Agriculture Russell Redding in traveling to four locations in western Pennsylvania to visit with dairy farm families, community leaders and others concerned about the ongoing low milk price cycle and its impact on individual farms and the broader dairy industry. It was an opportunity to listen to their concerns, discuss issues, and identify potential solutions. The discussion was enlightening, although the concerns expressed in western Pennsylvania were similar to those we have heard in other regions of the state.

In all four meetings, people brought up school milk and putting whole milk back on the school lunch tray, plant-based beverages and enforcing the “milk is milk” labeling and getting more transparency into how milk is priced and how the money flows back to producers. They also asked about the Pennsylvania Milk Marketing Board and checkoff-funded dairy promotion efforts, wanting more information about the role both play in the marketplace and what they are doing to stabilize the market.

While all of these could play a role in improving prices, the one thing that seemed to be missing from the discussion was trade and how it influences our industry. Not one person asked about what we could do to create more opportunities to move milk and dairy products beyond our borders. Yet, in the past month, we have seen the huge impact trade opportunities, or the lack of those opportunities, can have on our milk price.

In April, if you looked at the Chicago Mercantile Exchange board, you would have seen Class III milk prices that averaged nearly $17 for the last six months of 2018. It was a much-needed bump in the marketplace that we were anticipating would help bring a little relief to dairy farm families. Unfortunately, since then, US trade negotiations have eroded with three of our key dairy markets – Canada, Mexico and China – which have led to tariffs, some as high as 25 percent – on US dairy products entering those countries. Since that has erupted, Class III milk futures have fallen nearly two dollars. It’s a drop that many dairy farms simply cannot afford.

The reason milk prices have fallen back so much since the trade wars began is because 2 months of our annual milk production is exported. In the first half of 2018, US dairy exports were very strong, with the second quarter of the year bringing three months of record high volumes.

BTT (Before the Tariffs)

On a total volume basis, US dairy exports reached an all-time high level in April 2018, with suppliers shipping 213,115 tons of milk powder, cheese, butterfat, whey and lactose. That was up 31 percent from the previous year and represented a dollar value of $518 million. Dairy exports were equivalent to 18.8 percent of US milk production in April, on a total milk solids basis. That means that nearly 1 in every five days of milk production in the US was exported overseas.

Export volumes in March and May weren’t far behind April’s all-time high levels. In March, suppliers shipped 204,453 tons of dairy product, up 26 percent from the previous year and surpassing the previous high set in March 2014. Dairy exports that month were valued at $510 million and were equivalent to 17.3 percent of the US milk production, on a total milk solids basis. May’s export levels came in at 199,852 tons, valued at $512 million and equivalent to 17.2 percent of May’s US milk production.

The US Dairy Export Council warns this was all BTT (before the tariffs), which the checkoff-funded organization says will take away the competitive advantage the US has in Mexico and in China over other major dairy exporting regions like the European Union and New Zealand.

Just in Pennsylvania alone, the dairy export market is significant. According to data sourced by USDEC and the National Milk Producers Federation, 2016 dairy exports coming out of Pennsylvania generated $512 million in annual economic revenue and brought nearly 4,000 jobs to the Commonwealth. Mexico is Pennsylvania’s largest export market, with dairy exports from the Commonwealth to Mexico valued at $22.5 million in 2017.

Reaching Beyond Our Borders

Last year the US Dairy Export Council set a goal of getting to “20 by 20” – or getting US dairy export volumes to 20 percent of the US milk supply by 2020. According to USDEC, population increases and the expansion of the middle class in emerging markets will drive global dairy consumption at a faster rate than what their domestic industries can meet, creating an opportunity for US dairy products. Even as we look to establish additional processing capacity within Pennsylvania, the export market and our access to the PhilaPort system presents a huge opportunity for the local industry.

Exports hold our greatest opportunity for increasing demand for US dairy. But that increased demand cannot be realized without mutually beneficial trade agreements that recognize the value in creating opportunities for exports of dairy and other agricultural commodities. The US is well positioned to feed the world; we just need to make sure our government has the structure in place to allow us to do that.

Being able to join the Secretary and others in the discussions like the ones in western PA is encouraging. As I said many times, I am amazed at the passion and interest in dairy right now and the desire of so many to identify opportunities and find solutions. While not everyone agrees on what those solutions are, the one thing that is consistent is their desire to help and to make a difference. But, as we have those discussions, it’s important not to lose sight of what exists outside our borders. We need to do all we can to make sure the US is positioned well to capture those opportunities.

Editor’s Note: This column is written by Jayne Sebright, executive director for the Center for Dairy Excellence, and published monthly in the Lancaster Farming Dairy Reporter.